Join +750K new investors every month who copy stock picks from billionaire's portfoliosSign Up Free

U.S. CPI fell 0.1% on month in December; annual inflation slowed to 6.5%

Published 01/12/2023, 08:30 AM
Updated 01/12/2023, 08:37 AM
© Reuters.
XAU/USD
-
GC
-
ESU24
-
CL
-
1YMU24
-
NQU24
-
US2YT=X
-
US10YT=X
-
DXY
-

By Geoffrey Smith

Investing.com -- The headline rate of inflation in the U.S. fell to its lowest since late 2021 in December, encouraging hopes that the Federal Reserve will soon be able to stop raising interest rates.

Official data showed the consumer price index fell 0.1% from November, bringing the annual change to 6.5%, down from 7.1% the previous month. The monthly drop in the index was below analysts' forecasts for no change, but the annual rate was in line with consensus.

Inflation dynamics still look a little stronger once volatile elements such as food, energy, and auto sales are stripped out. The 'core' CPI rose another 0.3% last month, accelerating slightly from November and leaving the annual core rate up 5.7%.

The dollar fell to its lowest level in seven months on the news, as markets priced in an earlier and lower end to the Fed's tightening cycle. By 08:50 ET (13:50 GMT), the dollar index that tracks the greenback against a basket of developed market currencies was down 0.6% at 102.32, tracking a downward move in U.S. bond yields. The yield on the benchmark 2-Year Treasury note, closely correlated to expectations of Fed interest rates, fell 6 basis points to 4.17%, its lowest since October, while the 10-Year note yield, which reflects longer term inflation expectations fell 5 basis points to 3.51%.

Stock futures, accordingly, climbed. The S&P 500 futures contract rose 12.7 points or 0.3%, with Nasdaq 100 futures and Dow Jones futures rising in parallel. Gold futures also surged, rising 1.4% to an eight-month high. Gold - a non-interest-bearing asset - typically performs more strongly as bond yields fall.

Markets appeared unconcerned by the fact that the drop in the CPI was due largely to gasoline, as pump prices tailed off dramatically toward the end of the year. The energy sub-index in the CPI basket fell 4.5% on the month, thanks to a 9.4% drop in pump prices, masking further rises in prices for shelter and food.

Analysts said the figures weren't enough to stop the Fed from raising rates again at its next meeting, given the continued strength in core prices.

"Energy prices are volatile, and the Fed cannot rely on this to be a consistent source of disinflation," said Ryan Sweet, chief U.S. economist with Oxford Economics, in a note to clients. Global prices for crude oil have bottomed out since the end of last year, on signs that demand in China will rebound sharply this year as it reopens its economy.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.